NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What Segments Equity Markets?

Geert Bekaert, Campbell R. Harvey, Christian Lundblad, Stephan Siegel

NBER Working Paper No. 14802
Issued in March 2009
NBER Program(s):   AP   IFM

We propose a new, valuation-based measure of world equity market segmentation. While we observe decreased levels of segmentation in many developing countries, the level of segmentation is still significant. In contrast to previous research, we characterize the factors that account for variation in market segmentation both through time as well as across countries. While a country's regulation with respect to foreign capital flows is important in determining its level of segmentation, we find that non-regulatory factors are also related to the cross-sectional and time-series variation in the level of segmentation. We identify a country's political risk profile and its stock market development as two additional local segmentation factors as well as the U.S. corporate credit spread as a global segmentation factor.

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Document Object Identifier (DOI): 10.3386/w14802

Published: Rev. Financ. Stud. (2011) 24 (12): 3841-3890. doi: 10.1093/rfs/hhr082 First published online: October 7, 2011

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